Umami Sustainable Seafood Inc. - FORM 8-K/A - EX-99.3

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8-K/A - Umami Sustainable Seafood Inc.	v217677_8ka.htm
EX-99.4 - Umami Sustainable Seafood Inc.	v217677_ex99-4.htm
EX-99.2 - Umami Sustainable Seafood Inc.	v217677_ex99-2.htm
EX-99.6 - Umami Sustainable Seafood Inc.	v217677_ex99-6.htm
EX-99.5 - Umami Sustainable Seafood Inc.	v217677_ex99-5.htm

The Financial Statements and Report of

Independent Certified Public Accountant

Oceanic Enterprises, Inc.

FKA: Agritrade USA, Inc.

DBA: Midway Services

For The Years ending

December 31, 2009 and 2008

Independent Auditor’s Report

To the Board of Directors and Stockholders of Oceanic Enterprises, Inc.,

We have audited the accompanying balance sheet of Oceanic Enterprises, Inc., a California Corporation (FKA: Agritrade USA, Inc.), (DBA: Midway Services) as of December 31, 2009 and 2008 and the related statement of operations, changes in stockholders’ equity, and cash flows for the years then ended. These financial statements are the responsibility of the management of Oceanic Enterprises, Inc. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of Oceanic Enterprises, Inc.’s, internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of Oceanic Enterprises, Inc.’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

Oceanic Enterprises, Inc.’s, common stock was 100% owned by AUSA ehf (Iceland) in 2008. In January 2009 AUSA ehf merged with Holshyrna ehf (Iceland) a Private holding company, acquiring the 100% of the stock of Oceanic Enterprises, Inc. Holshyrna ehf (Iceland) owns majority interests in other related businesses that have common control and management. Accounting principles generally accepted in the United States of America requires the financial statements of commonly controlled and managed businesses to be combined or consolidated. The financial statements report only the activities of Oceanic Enterprises, Inc., and have been prepared for the purpose of inclusion in the consolidated financial reports of Holshyrna ehf, AUSA ehf and its subsidiaries as of December 31, 2009 and 2008. Certain balance sheet items have been classified in a manner to be consistent for consolidation of the group.

In our opinion, the financial statements referred to above present fairly in all material respects, with the exception of lack of consolidation with affiliate as noted above, the financial position of Oceanic Enterprises, Inc. as of December 31, 2009 and 2008, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

James T. Gaunce, CPA & Associates

Solana Beach, California U.S.A.

December 3, 2010

OCEANIC ENTERPRISES, INC.

BALANCE SHEET

December 31, 2009 and 2008

	2009			2008
ASSETS

CURRENT ASSETS
Cash	$	7,147		$	2,995,391
Accounts receivable - Baja Aqua Farms		645,774			-
Inventory		5,659			-
Prepaids, employee and other advances		10,000			18,380
Due from - Rancho Marino		2,157,313			1,035,923
Notes receivable - Baja Aqua Farms		700,000			-
Prepaid taxes		-			1,400
Deferred tax asset, net		430,000			492,000

Total current assets		3,955,893			4,543,094

EQUIPMENT
Vessels & equipment for vessels		12,996			12,996
Processing & farm equipment		33,929			33,929
Vehicles - autos & trucks		37,262			37,262
Office furniture & equipment		265,063			252,724
		349,250			336,911
Less accumulated depreciation		(254,239	)		(204,480	)
		95,011			132,431

LONG-TERM DEPOSITS		115,990			113,990

	$	4,166,894		$	4,789,515

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable	$	264,310		$	152,375
Accrued compensated absences		31,621			39,121
Credit Cards Payable		-			1,967
Accounts Payable to - Baja Aqua Farms		1,483,770			1,009,101
Accrued interest payable		148,294			40,174

Total current liabilities		1,927,995			1,242,738

LOANS PAYABLE - Stockholder		1,939,405			3,324,237

STOCKHOLDERS’ EQUITY
Common stock — no par value; 200,000 shares authorized; 10,000 shares issued and outstanding		10,000			10,000
Additional paid-in-capital		1,000,000			1,000,000
Retained earnings (deficit)		(710,506	)		(787,460	)
		299,494			222,540

	$	4,166,894		$	4,789,515

See notes to financial statements

OCEANIC ENTERPRISES, INC.

STATEMENT OF OPERATIONS

For the years ending December 31, 2009 and 2008

	2009			2008

REVENUE
Fish sales	$	9,707,209		$	10,709,661
Fish processing & other services		4,305			260,315
Management fees, commissions and vessel charter fees		1,727,350			510,040

		11,438,864			11,480,016
COST OF GOODS SOLD
Fish purchases		6,691,037			7,775,950
Processing costs & feeding expenses		183,265			226,287
Shipping & freight		803,258			680,315
Direct selling costs		1,618,055			1,214,280

		9,295,615			9,896,832

Gross Profit		2,143,249			1,583,184

EXPENSES
Salaries and wages		761,769			798,154
Outside services and consultants		187,723			445,059
Rent and occupancy costs		218,639			224,835
Vessel expenses		13,819			40,211
Travel, meals and entertainment		167,679			176,007
Telephone and cell phones		62,653			102,058
Payroll taxes		49,193			57,155
Vehicles expenses		70,148			97,587
Depreciation		49,759			100,766
Employees benefits		105,347			83,821
Professional fees		87,735			36,486
Office expense and supplies		69,015			154,310
Bank charges & miscellaneous		16,242			12,161
Permits, licenses & import Duties		2,867			10,632

		1,862,588			2,339,242

Income (loss) from operations		280,661			(756,058	)

OTHER INCOME (LOSS) AND (EXPENSE)
Interest expense		(254,943	)		(190,238	)
Gain (loss) on sale of assets		-			(15,135	)
Exchange gains (losses)		114,885			15,902

INCOME BEFORE PROVISION FOR INCOME TAX		140,603			(945,529	)
Add benefit for income taxes		(63,649	)		372,400

Net Income (Loss)	$	76,954		$	(573,129	)

See notes to financial statements

OCEANIC ENTERPRISES, INC.

STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

For the years ending December 31, 2009 and 2008

					Retained
	Common		Additional		Earnings
	Stock		Paid-in-capital		(Deficit)			Total

Balance at December 31, 2007	$	10,000	$	1,000,000	$	(214,331	)	$	795,669

Net Income (Loss)		-		-		(573,129	)		(573,129	)

Balance at December 31, 2008	$	10,000	$	1,000,000	$	(787,460	)	$	222,540

Net Income (Loss)		-		-		76,954			76,954

Balance at December 31, 2009	$	10,000	$	1,000,000	$	(710,506	)	$	299,494

See notes to financial statements

OCEANIC ENTERPRISES, INC.

STATEMENT OF CASH FLOWS

For the years ending December 31, 2009 and 2008

	2009			2008

Net Income (Loss)	$	76,954		$	(573,129	)
Adjustments to reconcile net income to net cash used by operating activities:
Depreciation		49,759			100,766
(Gain) Loss on disposition of assets		-			15,135
Effect of change in:
Accounts receivable - Baja Aqua Farms		(645,774	)		295,881
Inventory		(5,659	)		4,710,000
Notes receivable - Baja Aqua Farms		(700,000	)		-
Due from - Rancho Marino		(1,121,390	)		(1,035,923	)
Prepaid taxes		1,400			-
Deferred tax asset, net		62,000			(374,000	)
Prepaids, employee and other advances		8,380			(14,551	)
Deposits		(2,000	)		(6,000	)
Accounts payable		111,935			(74,922	)
Accrued compensated absences		(7,500	)		(20,603	)
Credit Cards Payable		(1,967	)		(23,463	)
Amounts due to - Baja Aqua Farms		474,669			(3,420,899	)
Accrued interest payable		108,120			2,674

Net cash used by operating activities		(1,591,073	)		(419,034	)

CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of equipment		-			75,000
Acquisition of equipment		(12,339	)		(5,552	)

Net cash provided by investing activities		(12,339	)		69,448

CASH FLOWS FROM FINANCING ACTIVITIES:
Loans from (repayments to) - Stockholder		(1,384,832	)		3,324,237

Net cash provided (use) by financing activities		(1,384,832	)		3,324,237

Net Increase (decrease) in cash		(2,988,244	)		2,974,651
CASH, beginning of year		2,995,391			20,740

CASH, end of year	$	7,147		$	2,995,391

See notes to financial statements.

OCEANIC ENTERPRISES, INC.

NOTES TO THE FINANCIAL STATEMENTS

For the years ending December 31, 2009 and 2008

NOTE 1 – NATURE OF THE BUSINESS AND ORGANIZATION

In March 2007, Agritrade USA, Inc. changed its name to Oceanic Enterprises, Inc. Oceanic Enterprises, Inc., a California Corporation, (also doing business as: Midway Services) was formed in November 2000, primarily to provide support and management services to Baja Aqua Farms, S.A. de C.V., a Mexico corporation affiliated though common ownership. Baja Aqua Farms, S.A. de C.V. (hereafter, Baja Aqua Farms) is engaged in the business of fishing and fish farms off the coast of Baja California, Mexico. The primary product and market of the Baja Aqua Farms is Blue Fin tuna for sale on the Japanese fish exchanges. Oceanic enterprises, Inc. (hereafter, Oceanic) contracts to distribute fish, and provides, support personnel, fish processing, shipping, selling and accounts receivable billing and collection services for the benefit of the Baja Aqua Farms.

Oceanic Enterprises, Inc.’s, common stock was 100% owned by AUSA ehf (Iceland) in 2008. In January 2009 AUSA ehf merged with Holshyrna ehf (Iceland) a private holding company, acquiring the 100% of the stock of Oceanic Enterprises, Inc. Holshyrna ehf (Iceland) owns majority interests in other related businesses that have common control and management, including Baja Aqua Farms. Accordingly, these financial statements have been prepared for the purpose of inclusion in the consolidated financial reports of Holshyrna ehf, AUSA ehf and its subsidiaries as of December 31, 2009 and 2008. Certain balance sheet items have been classified in a manner to be consistent for consolidation of the group.

NOTE 2 - BASIS OF PRESENTATION

Oceanic maintains its book and records in U.S. dollars and prepares its financial statements in accordance with U.S. generally accepted accounting principles (U.S. GAAP). The accompanying financial statements, generated for the purpose of consolidation with its parent and affiliated entities as of December 31, 2009 and 2008, have been prepared in accordance with International Financial Reporting Standards (IFRS). The most significant difference in U.S. GAAP and IFRS for these financial statements is the presentation and classification of certain operating expenses.

NOTE 3 - SIGNIFICANT ACCOUNTING POLICIES

Revenue Recognition

For the Year ending December 31, 2008 and up through June 2009, Oceanic’s revenues came from direct sales of fish (acquired exclusively from Baja Aqua Farms) to third parties as well as from Baja Aqua Farms for fees charged for management and administrative services, commissions, and vessel use fees. Oceanic also administers contracts for processing fish and purchasing of certain supplies and equipment in the US for the benefit of Baja Aqua Farms. Oceanic capitalizes these costs and expenses, which are invoiced to Baja Aqua Farms for full reimbursement. Accordingly, the recovery of these costs and expenses are not included in the revenues, expenses and cash flows of Oceanic.

Oceanic owned and operated a vessel utilized to transport personnel, supplies, equipment and fish harvested to/from the Baja Fish Farms. During 2008, this vessel was sold to Baja Aqua Farms.

OCEANIC ENTERPRISES, INC.

NOTES TO THE FINANCIAL STATEMENTS, (continued)

For the years ending December 31, 2009 and 2008

NOTE 3 - SIGNIFICANT ACCOUNTING POLICIES – Continued

Cash and Cash Equivalents

Cash and cash equivalents are comprised of short-term, highly liquid investments including certificates of deposits with maturities of 90 days or less. Oceanic maintains cash and cash equivalent balances at a large national financial institution. The accounts are insured by the Federal Deposit Insurance Corporation up to $250,000. From time to time Oceanic’s cash balances exceed the deposit insurance limits. During seasonal periods Oceanic will maintain certain deposits in Japanese yen and hedge contracts as a result of its billing and collection process for fish sold in Japan by Oceanic and for Baja Aqua Farms. Rate exchange gains or losses are credited or charged to the books based upon for Oceanic for its direct sales of fish and reimbursed by Baja Aqua Farms for any sales administered on its behalf.

Accounts Receivable – Baja Aqua Farms

At December 31, 2009 and 2008 accounts receivable represent amount due from Baja Aqua Farms for management services, commission, processing fees and reimbursable expenses paid by Oceanic on behalf of Baja Aqua Farms. Accordingly, management believes receivables are fully collectible, and no reserve for allowance for doubtful accounts has been established.

Inventory – Cost of Goods Sold

In December 2007, Oceanic entered into an agreement with Baja Aqua Farms to acquire 300,000 kilograms of its Blue Fin inventory for $4,710,000. Under the terms of the agreement, Oceanic was to pay Baja Aqua Farms $380,000 down with the balance payable incrementally over four months ending April 30, 2008. Interest charged to operations and paid for to Baja Aqua Farms under the bulk purchase agreement for the year ending 2008 was $99,435. During 2008, Oceanic acquired $3,065,950 of additional fish inventory from Baja Aqua Farms for sale to third parties. For the years ending December 31, 2009 and 2008, costs of goods sold include $6,691,037 and $7,775,950, respectively; for cost fish acquired exclusively from Baja Aqua Farms for direct sales by Oceanic.

Property and Equipment

Property and equipment are recorded at cost. Depreciation is provided on the straight-line and accelerated methods over the estimated useful lives of the respective assets, which range from 5 to 10 years. When items of property and equipment are sold or retired, the related cost and accumulated depreciation are removed from the accounts and any gain or loss is included in the results of operations. Maintenance and repairs are charged to expense as incurred; major renewals and betterments are capitalized. For the years ending December 31, 2009 and 2008, $49,459 and $100,766 was charged to depreciation expense; respectively, and $82,069 of the assets had been fully depreciated as of December 31, 2009.

Accounts Payable To — Baja Aqua Farms

During fishing and harvest cycles Oceanic provides selling, billing and collection services for Baja Aqua Farms for fish sales. Oceanic provides credit to customers and generally requires no security or collateral. Oceanic performs a regular review of customer activity and uses the direct write-off method for any uncollectible accounts, which are charged to Baja Aqua Farms. These receivable balances are offset by a contra-payable account to Baja Aqua Farms, and when collections are received they are remitted to Baja Aqua Farms. From time to time to Oceanic will retain these deposits to cover cash shortages which are classified as “Amounts due to – Baja Aqua Farms

OCEANIC ENTERPRISES, INC.

NOTES TO THE FINANCIAL STATEMENTS, (continued)

For the years ending December 31, 2009 and 2008

NOTE 3 - SIGNIFICANT ACCOUNTING POLICIES – Continued

Income Taxes and Deferred Taxes

Income and deferred taxes has been recorded under the liability method whereby deferred tax asset or liability account balances are calculated at the balance sheet date using current tax laws and rates in effect. A deferred income tax asset or liability is computed for the expected future impact of differences between the financial reporting and tax bases of assets and liabilities, as well as the expected future tax benefit to be derived from tax loss and credit carry forwards. Deferred income tax expense is generally the net change during the year in the deferred income tax asset or liability. Valuation allowances are established when realization of deferred tax assets is uncertain. The effect of tax rate changes is reflected in tax expense during the period in which such changes are enacted.

Use of Estimates

The preparation of financial statements requires that management make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. Actual results could differ from those estimates.

Reclassifications

Certain reclassifications have been made to the prior year to conform to the current presentation.

NOTE 4 – DUE FROM AND NOTES RECEIVABLE - RELATED PARTIES

Oceanic converted $700,000 of Baja Aqua Farms accounts receivable to a note which was recorded as a note receivable for a period of one year. All principal and accrued and unpaid interest at rate of 6.5% per annum is due December 1, 2010.

Oceanic has makes certain advances to or on behalf of other support entities which are related to Baja Aqua Farms for general financing needs and to acquiring certain assets including Mexican fishing and farming permits: These related entities include:

Rancho Marino Guadalupe – an entity established to hold certain assets and farming permits which is owned 99% by Baja Aqua Farms and 1% by Marpesca.

Marpesca – an entity established to acquire and hold fishing permits which is owned 49% by Baja Aqua Farms and 51% by an unrelated Mexican national.

NOTE 5 – LEASE COMMITMENTS

In January 2007 Oceanic entered into a non-cancelable long-term lease commitment for office facilities located in San Diego California. Occupancy commenced in March 2007 with a 62-month term ending in May 2012. As of December 31, 2009, rent was payable monthly at $8,486, plus a percentage of common operating costs. The monthly rent increases of approximately 3% annually each April over the lease term.

Oceanic leases numerous residential properties for use by certain maritime and temporary personnel as well as for visiting contractors. The leases were originally signed for one year or less with several converting to month-to-month agreements at the expiration of the original lease term. The total combined monthly rental payments on the residential lease agreements were approximately $6,600 per month as of December 31, 2009.

OCEANIC ENTERPRISES, INC.

NOTES TO THE FINANCIAL STATEMENTS, (continued)

For the years ending December 31, 2009 and 2008

NOTE 5 – LEASE COMMITMENTS – Continued

Total rent and occupancy costs charged to operations for the year ending December 31, 2009 and 2008 were $198,628 and $235,411, respectively.

Total minimum annual long-term lease commitments (i.e. agreements lasting longer than one year) as of December 31, 2009 are as follows:

Year	Rents
2010		104,080
2011		107,063
2012		45,488

	$	256,631

NOTE 6 – DEPOSITS, RELATED LETTER OF CREDIT AND PURCHASE COMMITMENTS

Included in Long-Term Deposits at December 31, 2009 and 2008 is a $50,000 deposit held as collateral for an outstanding letter of credit issued for the purpose of obtaining US Customs Carrier Bond (# 259601974) related to the use and operations of the Cape Falcon, (a vessel owned by Baja Aqua Farms used to transport fish, personnel and equipment between US and Mexico), and a $57,990 office lease deposit.

NOTE 7 – LOANS PAYABLE – Stockholder

During 2008, the majority Stockholder made certain loans from entities controlled by the Stockholder totaling $3,324,237. Notes are due on demand, but management has classified these as long-term based upon the majority Stockholder’s representation. For the year ended December 31, 2008 interest of $90,803 was accrued and charged to operations, at a 7.3% per annum, with $50,630 paid and $40,173 accrued unpaid as of December 31, 2008. For the year ended December 31, 2009 interest of $148,294 was accrued and charged to operations, at a 6.8% per annum, with $40,173 paid and $148,294 accrued unpaid as of December 31, 2009.

NOTE 8 – COMMON STOCK

Oceanic has a single class of no par value common stock with 200,000 shares authorized, and 10,000 issued and outstanding as of December 31, 2009 and 2008. In January 2009 AUSA ehf merged with Holshyrna ehf (Iceland) a Private holding company, acquiring the 100% of the stock of Oceanic Enterprises, Inc.

NOTE 9 - INCOME TAXES

The provision or benefit for income taxes represents the estimated taxes payable or refundable for the period plus or minus the change during the period in deferred tax assets and liabilities. Deferred income tax assets and liabilities are computed annually for differences between the financial statement and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income and accumulated tax credits, if available.

OCEANIC ENTERPRISES, INC.

NOTES TO THE FINANCIAL STATEMENTS, (continued)

For the years ending December 31, 2009 and 2008

NOTE 9 - INCOME TAXES - Continued

The provisions for income taxes for the years ended December 31, 2009 and 2008 are follows:

	2009		2008
Current Provision	$	1,649	$	1,600
Deferred taxes (deferred tax benefit)		62,000		(374,000	)

Tax provision (benefit)	$	63,649	$	(372,400	)

As of December 31, 2009 and 2008, the net deferred tax asset balance resulted from the following timing differences:

	2009			2008
	Tax Asset			Tax Asset
	(Tax Liability)			(Tax Liability)
Accrued compensated absences	$	8,000		$	9,600
Net operating losses		424,200			483,800
Depreciation		(2,200	)		(1,400	)

Deferred tax asset, net	$	430,000		$	492,000

The net cash paid for income taxes for the years ending December 31, 2009 and 2008 was $200 and $1,600, respectively.

NOTE 10 – RELATED PARTY ACCOUNTS AND TRANSACTIONS

In May 2001, Oceanic purchased a Vessel known as Cape Falcon with funds advances from Baja Aqua Farm the vessel is flagged in the US and owned by Oceanic for use in supporting the fishing and fish farming activities of Baja Aqua Farms. The advanced funds were converted to $300,000, ten-year term, balloon note with interest at 4.75% per annum payable on demand; all principal and unpaid interest due April 2011. In July 2007, the note was paid in full. In October 2008, Oceanic sold the Cape Falcon and certain related vessel equipment to Baja Aqua Farms for $75,000 resulting in a $15,135 loss included in other income and loss for the year ending December 31, 2008.

Attached is a summary schedule of the related party accounts balance and transactions for the year ending December 31, 2009 and 2008.

OCEANIC ENTERPRISES, INC.

NOTES TO THE FINANCIAL STATEMENTS, (continued)

For the years ending December 31, 2009 and 2008

NOTE 10 – RELATED PARTY ACCOUNTS AND TRANSACTIONS – Continued

Summary Schedule of Related Party Accounts Balance and Transactions

	2009			2008
	Assets			Assets
	(Liabilities)			(Liabilities)
Assets and Liabilities:
Other receivables	$	-		$	8,941

Due from (to) Baja Aqua Farms and subsidiaries:
Accounts receivable - Baja Aqua Farms	$	645,774		$	-
Due from - Rancho Marino		2,157,313			1,035,923
Notes receivable - Baja Aqua Farms		700,000			-
Accounts Payable to - Baja Aqua Farms		(1,475,445	)		(1,009,101	)
Advance from - Marpesa		(8,325	)		-

Amounts due from (to) - Baja Aqua Farms and subsidiaries, net	$	2,019,317		$	26,822

Accrued interest payable - Stockholder	$	(148,294	)	$	(40,174	)

Notes payable - Stockholder	$	(1,939,405	)	$	(3,324,237	)

	2009			2008
	Income			Income
	(Expenses)			(Expenses)
Revenues - Baja Aqua Farms:
Fish processing & other services	$	4,305		$	260,315
Management fees, commissions and vessel charter fees		1,727,350		$	510,040
	$	1,731,655		$	770,355

Expenses - Baja Aqua Farms:
Fish purchases	$	(6,691,037	)	$	(7,775,950	)
Interest expense	$	-		$	(99,435	)
Gain (Loss) on sale of assets	$	-		$	(15,135	)

Expenses - Others
Interest expense - Stockholder	$	(148,294	)	$	(90,803	)

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